NPS rule change: Pension funds liable for third-party lapses under new PFRDA rules

The Pension Fund Regulatory and Development Authority (PFRDA) has strengthened safeguards for National Pension System (NPS) subscribers by making pension funds responsible for any lapses by third-party entities they engage to operate certain services.

The change has been notified through the Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2026, which came into effect on 13 July 2026. The amendment inserts a new Regulation 4A into the existing Exits and Withdrawals Regulations, 2015.

The newly inserted Regulation 4A allows a pension fund to engage another entity to operationalise a "specific purpose scheme" in accordance with guidelines issued by PFRDA.

However, the regulation makes it clear that the pension fund cannot shift responsibility to the outsourced entity.

According to the notification, the pension fund "shall be responsible to the subscriber" who has availed services under such a scheme and "be liable for any act of omission or commission" of the entity engaged by it.

The amendment also lays down eligibility conditions for such entities. They must have the technological capability to integrate with the pension fund or any other PFRDA-registered intermediary, including the Central Recordkeeping Agency, for functions such as sharing information, facilitating payment of benefits or providing other subscriber services.

Further, both the pension fund and the entity engaged by it will remain subject to PFRDA's supervision and must comply with applicable laws.

For NPS subscribers, the amendment provides greater regulatory clarity by ensuring that even if a pension fund outsources certain operational functions, accountability towards subscribers continues to rest with the pension fund.

In a separate notification, PFRDA has notified the Pension Fund Regulatory and Development Authority (Regulatory Sandbox) Regulations, 2026.

The regulator said the framework is intended to facilitate responsible innovation in the pension sector while protecting subscribers' interests and ensuring the orderly development of pension schemes regulated by the Authority.

The regulations provide for the establishment of a Regulatory Sandbox where eligible entities can test innovative products, services, business models or technology solutions in a controlled environment. Where necessary, PFRDA may grant limited and time-bound regulatory relaxations to facilitate such testing.

The framework is aimed at encouraging innovation in the pension ecosystem without compromising regulatory oversight or subscriber protection.

The two notifications signal PFRDA's twin focus of strengthening consumer protection while creating an enabling framework for technology-led innovation in India's pension sector.

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